After a stable period through the first quarter for both prices and volumes, there are now signs of price rises for Far East sawn lumber. As noted in our January report , stocks in Europe were “not excessive” and compounding this with the low or very low stock levels at producer mills, plus a relatively tight log supply situation, there was every reason for exporters to go for some modest rises and to continue to push for moderately higher levels through the next couple of months.

As importers have to cover for their major species requirements for the summer months, some rises are already noted for meranti and keruing. Although export log prices in the region have just moved marginally lower – the odd US$1 or US$2 weaker – the prices on domestic markets in Malaysia and Indonesia are increasing quite strongly – surely a precursor of higher prices for sawn lumber and other products in the coming months. In fact, sawn lumber prices on their domestic markets have moved upwards in the past weeks.

There are several factors at work here, not least the more stringent control on logging companies by the Indonesian government which is determined to push harvest volumes down to the sustainable target. The co-operation between Indonesia, Malaysia and China to control and then halt the illegal export of Indonesian logs has taken effect and Malaysian mills that relied on log imports through Port Kelang are now having problems sourcing sufficient logs supplies.

Mill closures

Indonesia’s ‘Forest Industry Revitalisation Agency’ (BRIK), which was set up as a joint agency between the Forest Ministry and the Ministry of Trade and Industry late last year to inspect, monitor and regulate the timber industry, has recently closed down at least two plywood mills which it said were using illegally felled logs, and more compulsory closures are expected. BRIK has inspected some 44 other mills and has the power to revoke licences if mills are found to be sourcing illegal logs or are not operating satisfactorily. All exporters have to be registered and reports are that a large number of exporters found to have insufficient machinery, equipment and other facilities – including some companies holding export licences without any production facilities at all – have not had their export licences renewed.

Indonesia is struggling with the undisputed fact that the timber processing industry has a capacity far in excess of the sustainable log supply. Demand capacity is said to be 63 million m3 per year; last year the industry had a reduced input capacity of 30 million m3 against the government’s sustainable target harvest of 12 million m3. There was some talk early in the year of reducing this to only 8.5 million m3 in 2003 but this seems not to have been promoted.

Japanese demand falls

Japan has forecast a drop of 1% in total demand for timber products in 2003. Since consumption is expected to be around 87 million m3, even 1% is a significant volume. Lumber imports are forecast to increase as Japan’s own production falls, while plywood production will increase slightly, ending several years of a gradual decline in domestic manufacture. Laminated wood products are also expected to do well. Imports of logs, plywood and veneer are likely to fall.

Overall, total imports of timber products are expected to be down for the third year in a row but will still be over 71 million m3. In spite of the better forecast for local plywood manufacture, prices of plywood logs within Japan are weakening and demand has fallen for new log contracts, causing Sarawak log exporters to slow production, while still keeping their offer prices very firm.

Indonesian meeting

Representatives of the Indonesian Plywood Association (APKINDO) and the Malaysian Panel Manufacturers Association met their counterpart Japanese associations recently and agreed a target volume for plywood imports into Japan for 2003 at 7 million m3. Indonesia will be the largest supplier at around 2.3 million m3 with Malaysia shipping between 1.5-1.75 million m3. Indonesia’s total is likely to be down this year because of the decreased log supply. Current plywood demand within Japan is reported as dull.

China again forecasts 7% economic growth in 2003. It isn’t clear whether or not the outbreak of SARS will have any downwards effect on this target but there is no doubt of the strength of the economy, with manufacturing still picking up businesses from Europe and US which transfer to China for the low wage rates and undoubted skills of the workforce.

The Natural Forest Protection Programme is curtailing harvest volumes from China’s own forests and the steady upsurge in demand for timber continue to be met by increasing imports, especially of conifer logs.

&#8220A large number of Indonesian exporters found to have insufficient machinery, equipment and other facilities – including some without any production facilities at all – have not had their export licences renewed”

The government is confident that economic growth targets will be met and this is certain to mean that imports of timber and timber products will go on rising year on year.

Radiata pine

New Zealand has been shipping increasing volumes of radiata pine logs to China – 1.5 million m3 in 2002 – though better prices have been achieved for the 3.9 million m3 NZ logs which went to South Korea and even higher prices for the 1.5 million m3 of doubtless higher quality for Japan.

Russia is the lowest priced and, by volume, the largest supplier to China. At a price average of US$63/m3 cif in 2003 for the various pine species and larch logs, with a massive 14.6 million m3 supplied in 2002. Russian logs are favourites with the Chinese mills; the species are familiar and quality from Russia’s slow-growing, vast natural forests is said to be much superior to North American or NZ softwood logs.

Having said that, New Zealand has persevered over many years with silvicultural and pruning techniques to produce very good clear wood which is fetching good prices in the US market.

Myanmar teak prices have weakened a little but, otherwise in the region, prices are quite firm as local domestic demands are good and often at prices more rewarding than for export products. Malaysian particleboards are down in price while Indonesian mills report a rising trend, though from a lower level than current prices for Malaysian board.

In general, markets are reasonably active and, as we forecast in January, sawn lumber prices have moved up and are now very firm and trending upwards. The reasons are the generally moderate to low stocks in consumer and producer countries and in the pipeline. As well, the log supply situation in the Far East producer countries is tight and controls are being more stringently applied to reduce logging to sustainable levels.

Prices stabilise

The past massive ups and downs in log and lumber prices are no longer to be seen. The rather gentle price and demand movements in today’s market place have led to much more stable conditions for both producers and consumers. Far East export log prices are marginally weaker, waiting for Japanese plywood manufacturers to decide when to buy but the strong economies in the region are resulting in higher and very firm prices for logs, lumber, plywood and board products on domestic markets.